OBJECTIVES•Explain the determination of individual consumer demand (Continued)•Rational behavior in economic terms: consumers maximize their well-being given their budget constraint.•Effect of risk•Effect of asymmetric information•Define a state's budget constraint and its priorities and requires determination of the optimal choice

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OBJECTIVES•Show how market demand is a summation of consumer demand•Explain how managers can exert control over demand by controlling its determinants•Pricing•Advertising•Product quality

INDIFFERENCE CURVES•Ms. Popovich: a running example•She lives in South Pasadena, California. We will get to know about her preferences and her responses to market incentives.•She has a limited budget that she must allocate between food and clothing.•If her available budget increases, she can buy more of both goods.•If the price of one good increases, she can buy less of that good.

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INDIFFERENCE CURVES•Ms. Popovich: a running example•Her utility maximizing combination of food and clothing is found where her indifference curve is tangent to her budget constraint.•If she receives a coupon, how will her budget constraint change?•If she receives a quantity discount, how will her budget constraint change?

INDIFFERENCE CURVES•Ms. Popovich: a running example (Continued)•Her utility maximizing combination of food and clothing is found where her indifference curve is tangent to her budget constraint.•Why is she generally better off with a cash gift than a gift or gift card of equal value?•How does she balance work and leisure?•If the price of a good changes, how will her consumption bundle change?•How is her demand curve derived?

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INDIFFERENCE CURVES•Indifference curve: Contains points representing market bundles among which the consumer is indifferent•Utility refers to the happiness or satisfaction that a person derives from consumption of a good or service.•If two combinations of two goods yield the same level of utility, and are hence equally desirable, then they are on the same indifference curve.

INDIFFERENCE CURVES•Characteristics of indifference curves•A consumer has many different indifference curves.

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